Bitcoin’s price plummeted after US regulators rejected a proposal by the Winklevoss twins for a publicly traded fund based on the digital currency, dashing hopes that a government-approved investment vehicle would lead to wider interest in virtual money.

The Securities and Exchange Commission refused to grant an exemption that would have let the Winklevoss Bitcoin Trust trade on the Bats BZX Exchange, according to a filing posted Friday on the regulator’s website. The decision ended a months-long rally that pushed the virtual money’s value higher than gold. Bitcoin fell as much as 18 per cent against the dollar to US$978.76 after the decision, the lowest intraday price in a month.

Tyler and Cameron Winklevoss, the brothers famed for their dispute with Mark Zuckerberg over the origins of Facebook, vowed to continue working with the SEC to make their bitcoin vision a reality. They have been engaging with regulators and tweaking their proposal for years.

Friday’s decision doesn’t close the door on a possible future exchange-traded fund based on bitcoin, but it makes the path more complicated. The SEC rejected the application because the Bats exchange would be unable to enter into necessary surveillance-sharing agreements given that “significant markets for bitcoin are unregulated,” according to the filing on the agency’s website.

“The Commission does not find the proposed rule change to be consistent with the Exchange Act.”

Bitcoin isn’t regulated by any government and has been used by consumers worldwide to shelter assets from inflation or political upheavals in their home countries. Last year, bitcoin outperformed all major foreign-exchange trades, stock indexes, and currencies and commodity contracts.

“The SEC is the gatekeeper against securities that are not properly market tested and could be a danger to investors,” said Mark T. Williams, master lecturer at Boston University, who focuses on risk management. “It is reassuring that the SEC did their job in properly protecting the market.”

After bitcoin’s initial plunge, the currency pared losses to 8.3 per cent in New York on Friday.

“We remain optimistic and committed to bringing COIN to market, and look forward to continuing to work with the SEC staff,” Tyler Winklevoss said in a statement. “We began this journey almost four years ago, and are determined to see it through. We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”

This article appeared in the South China Morning Post print edition as: Winklevoss twins try and fail to expand bitcoin market